The shocking story in this week’s Financial Times had this lead: “Call center workers are becoming as cheap to hire in the U.S. as they are in India.” High unemployment in the U.S. has forced down wages for low-paid workers in the U.S. so that in many cases Americans are cheaper to hire than those in a country where most people live on less than $8.00 per day.
For 90 days, workers at the upstate New York Mott factory (owned by Dr Pepper Snapple) have been striking to stop a $1.50 cut in pay, pension contributions, and other givebacks in the face of healthy company profits. Unlike other companies that have gotten drastic pay cuts from union members when they opened their books to prove their economic distress—GM, Ford, Chrysler, Goodyear tire company—Dr Pepper Snapple admits they can afford to pay; but they argue (I imagine some with some smugness) that unemployment is so high that competition between desperate workers will boost profits further as workers accept less pay to get and keep a job.
People have to understand how difficult the decision to strike is: you forgo a paycheck and pension contributions and threaten your health-insurance coverage. Passions and convictions run high. New York Times reporter Steven Greenhouse captures that when he quotes a striker: “‘It’s disgusting, honestly, that they want to take things away from the people who made them profitable,’ said Ms. Muoio, a $19-an-hour machine operator who has worked at the plant 15 years.”
Common in these illustrations is the danger of endorsing market fundamentalism and “free” trade without shoring up institutions that protect labor standards and union rights. The EU took the opposite approach when the European Union phased in integration over decades to ensure that Portuguese workers wages moved up to German standards, and not the other way around.
Only before the Great Depression did economists think letting unemployment driving down wages was a good thing.
Falling wages is a bad thing, a very bad thing. Even if you are channeling gilded age Jay Gould—who said, “I can hire half of the working class to kill the other half”—you must concede that if workers don’t buy stuff, there is more unemployment, which means even lower wages, leading to more unemployment, in a spiral downward of recession and depression that eventually means you won’t be able buy stuff, no matter how cheap it is.
Harvard Economist Richard Freeman wrote a provocative article back in the day when there was a labor movement to articulate why NAFTA and giving China privilege in the World Trade Organization etc. would bring down American living standards unless the over a billion peasants had access to free speech and freedom of assembly (and thus form independent free and effective trade unions). The article is called “Are Your Wages Set in Bejing.” He speculated that without strong unions and labor protections, 2 billion peasants and unemployment would flatten living standards and take economies down with them.
He was right.